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How a Federal Law Trumps Cost-Effective Transit

By threatening to withhold mass transit funds, Washington is preventing California from realizing savings from its pension reforms. It isn't the first time special interest legislation has stood in the way of cheaper government.

Economic security is increasingly elusive in an era of uncertainty. That is, unless you happen to be a transit worker. You see, federal labor law gives transit workers unprecedented protections, including up to six years of full pay and benefits if they are displaced.

The problem is that the federal requirements are killing cash-strapped states.

Section 13(c) of the Federal Transit Law requires that employee protections must be certified by the Department of Labor and in place before federal transit funds can be released to a mass transit provider.

California is the latest state to get smacked by 13(c). U.S. Labor Secretary Thomas E. Perez is threatening to withhold $4.3 billion in mass transit funding if the state's pension reforms are applied to transit workers because the benefit reductions included in the law were not arrived at through collective bargaining. The reforms require current state workers to pay more toward their retirement plans, limit pension amounts for new hires, and raise the age at which most workers can collect a full pension.

California's is hardly the only example of 13(c) landing a state government entity firmly between a rock and a hard place.

To comply with Federal Transit Administration competitive procurement requirements, the Massachusetts Bay Transportation Authority (MBTA) put the contract for operating its commuter rail services out to bid in 1999. To maximize competition, the MBTA broke up its commuter operations into three segments. When bids were opened for train cleaning and maintenance -- the smallest of the three segments and the first to be procured -- every bid but one came in between $175 million and $199 million for the five-year contract. The fourth, from Amtrak, then the incumbent operator, was $291 million.

With an MBTA cleaning and maintenance workforce of 552, Amtrak used more workers per passenger car and per locomotive than seven comparable North American commuter-rail systems. The winning bidder, Bay State Transit Services, planned to hire existing Amtrak employees, but it only needed 415 workers. Even at that level, the MBTA still would have had a higher ratio of workers to equipment than any of the comparable commuter operations except for the New York area's Metro North railroad. The other non-Amtrak bidders anticipated using a similarly sized workforce.

The Bay State jobs were all to be unionized with salaries comparable to what workers were earning from Amtrak. In addition, the MBTA identified 55 other jobs that could be filled by displaced commuter rail workers, gave other former Amtrak employees priority for future MBTA jobs, and offered a $10 million severance program.

But the Labor Department decided that the only way to satisfy 13(c) and maintain the MBTA's federal funding was for all existing employees -- regardless of need -- and all collective bargaining agreements to be carried over to the new employer. Not even the full pay and benefits for up to six years that the law calls for would suffice.

The MBTA was ultimately forced to sign a three-year extension with Amtrak that cost tens of millions of dollars more than it would have paid Bay State Transit Services. Lest you think things have gotten better in the interim, California's transit workers will be exempted from the pension reforms until at least the end of next year while a lawsuit to determine whether they should be subject to the new law is pending.

In an era of massive unfunded pension liabilities and unmet transportation infrastructure needs, state taxpayers can no longer shoulder the burden of special-interest legislation like 13(c) that should go the way of the dinosaurs. Until that happens, the labor department and the courts would do well to show states some mercy by reining in ever-broader interpretations of this ill-considered statute.